I had a conversation with a client recently who told me that he really did not like seeing fluctuations in his investment portfolio. He was keeping about half his retirement portfolio in cash and the other half in bond mutual funds. Then I asked the client if we could do some calculations to ultimately see if he was on track for his retirement goal. I ran the numbers, assuming the portfolio grew at roughly two percent on average every single year based on that current investment portfolio, that's half cash and half bonds. Then I ran the analysis again, assuming that the client's portfolio grew at, let's say, seven percent a year. Here's what we learned, assuming average returns about two percent a year, the client would pretty much never be able to retire or he would have had to drastically reduce his expenses or he would need to save in turn more money that was honestly going to be completely unrealistic for him to save. But, if we bumped up that average annual rate of return to seven percent between now and retirement, he was actually pretty close to being on track to retire at age 67. Although investing for retirement does mean risking some fluctuations in your overall portfolio and you could potentially lose money over time. Not investing has its own unique set of risks. For example, most of us, it would be extremely difficult, if not impossible, to ever save enough money for retirement without getting some decent growth from our investment portfolio, which can make the risk of feeling a little bit less like not investing ultimately, more than investing. In this lesson, we're going to walk through an example of how growth rates could impact your retirement balances over time, along with how it would look like to create an income stream by taking distributions or different sources of income in retirement and how the two would ultimately play together towards your financial goals. Let's say that you're deciding whether to invest your retirement portfolio or not invest your retirement portfolio. Let's assume you have $100,000 today and you'll be retiring in 30 years. Investing in earning about seven percent a year would give you about $760,000 retirement, which would translate to about $30,000 of distributions every year during retirement. If instead, you avoided investing and just use let's say, a high-yield savings account for your retirement portfolio, you might earn one percent, two percent something along there which would give you about $135,000 at retirement, and then that would translate to about 5,500 bucks a year withdrawals. Thirty thousand dollars per year versus $5,500 a year. That is a huge difference and that's why investing for retirement is so important so that your money can grow and provide you enough money to live on for your retirement years. Speaking of what you'll be living on in your retirement, your portfolio is going to provide some or most of your income, but you're also likely to receive some income from social security and maybe even a pension if your employer still offers a pension, which is honestly becoming less and less common these days. Some other sources of retirement income could be rental income or maybe even part-time work. Your source of income are going to be unique to you, but they're going to work together to provide you with an income stream on a monthly basis that you can use to cover some of your ultimate expenses. You could, for example, have all of your retirement income sources pay into a certain account and then set up automatic transfers from that account into your primary checking account. It could be a great way to give you the comfort of let's say, a steady paycheck, even though you're retired and not working full time anymore. Keep in mind that your retirement goal can also be adjusted. Maybe you're shooting for retirement at age 60, but you don't quite have enough saved when you get there. You can retire maybe a little bit later, or you could tweak your expenses a little bit to reduce them. Or you can even look at, let's say, downsizing your house to reduce the cost and potentially use some of your equity to supplement your investment portfolio to create more income in retirement. It's also important to remember that retirement isn't the only financial goal that really matters, even though it's an extremely important goal. It can be helpful to remember that other goals, like paying off debt and building your emergency fund, can also help you indirectly move closer towards your ultimate retirement goal. Remember, it's a marathon, not a sprint, save what you can, and when you can for retirement, and then look to invest those dollars when you're saving for a long term goal and retirement so that money can grow for you and help you reach your long term goal.